ITO 3(1)(2), MUMBAI vs. BHARAT TILES AND MARBLE P.LTD, MUMBAI

The issue involved in these appeals is with regard to treatment of rental income offered by the assessee as business income, which has been treated by the AO as income from house property. The learned A.R., Miss Pramila Ishwer Rathi, appearing on behalf of the assessee invited our attention to the order of the Tribunal in assessee’s own case for A.Y. 2011- 12 dated 14.02.2018, wherein the issue with regard to treatment of the said income was decided in favour of the assessee after having the following observation: - “12. We have heard both the parties, perused the material available on record and gone through the orders of the authorities below. It is M/s. Bharat Tiles and Marble Pvt. Ltd. admitted fact that the assessee has discontinued its manufacturing activity and continued the activity of letting out its properties and derived rental income. The activity of assessee is also supported by main objects clause in memorandum of association. We further noticed that except letting out properties the assessee has not carried out any other business activity. Once the assessee has carried out its main activity of letting out properties to derive rental income, such rental income should be considered under the head “Income from house property”. This legal proposition is further supported by the decision of Hon’ble Supreme Court in the case of Rayala Corporation Pvt. Ltd. vs. ACIT (supra), wherein under similar circumstances the Hon’ble Supreme Court observed that once the assessee had only one business that was of leasing its property and earning rent there from, the income so earned should be treated as business income and such income was to be subjected to tax under the head “Profit and gains of the business or profession”. This legal proposition is further supported by the decision of ITAT Mumbai SMC Bench, in the case of Distinct Developers Pvt. Ltd. (supra) wherein under similar circumstances the co-ordinate Bench by following the decision of Hon’ble Supreme Court in the case of Rayala Corporation Pvt. Ltd. vs. ACIT (supra) has held that rental income received from letting out of properties should be considered under the head “Income from business”.

Considering the facts and circumstances of this case and also following the ratio of Hon’ble Supreme Court in the case of Rayala Corporation Pvt. Ltd. vs. ACIT (supra), we are of the considered view that if the main activity of the assessee is of letting out properties and derive rental income without any other business activity, then such rental income should be considered under the head “Income from business or profession” but not under the head “Income from house property”. Therefore, we direct the AO to assess rental income under the head “Income from business or profession” as claimed by the assessee.” In view of the above decision of the Tribunal Miss Pramila Rathi argued that since on merit issue has been decided in favour of the assessee, AO was not justified in levying the penalty under Section 271(1)(c) of the Act, which was deleted by the CIT(A).

We have considered the rival contentions and found that in A.Y. 2011-12 Revenue is aggrieved by the action of the CIT(A) for deleting the penalty imposed under Section 271(1)(c) of the Act with respect to the change of head of income. As in the quantum appeal the Tribunal has already reversed the order of the AO accepting assessee’s contention with regard to the nature of income being income from business and profession,

M/s. Bharat Tiles and Marble Pvt. Ltd. the penalty imposed has no legs to stand. We also found that even on merits the CIT(A) has deleted the penalty after having detailed observation as para 5.2, which has not been controverted by the learned D.R. by bringing any positive material on record.

In view of the above we do not find any reason to interfere in the order of the CIT(A) for deleting penalty imposed under Section 271(1)(c) of the Act in A.Y. 2011-12.

In A.Y. 2013-14 Revenue is aggrieved by the action of the CIT(A) for treating the rental income as income from business. As mentioned above, the issue is covered by the order of the Tribunal in assessee’s own case for A.Y. 2011-12 dated 14.02.2018, relevant para No. 12 has already been reproduced above. As the facts and circumstances during the year under consideration are same, respectfully following the order of the Tribunal in assessee’s own case, we do not find any reason to interfere in the order of CIT(A) for treating rental income as income from business and profession.

In the result, both the appeals filed by the Revenue are dismissed.